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Total, NIOC commit to South Pars Phase 11 offshore Iran

PARIS – Total and the National Iranian Oil Co. (NIOC) have signed a 20-year contract for the development of and production from Phase 11 of the South Pars gas field in the Persian Gulf.

The facilities will have a production capacity of 2 bcf/d, or 400,000 boe/d including condensate. Produced gas will supply the Iranian domestic market from in 2021.

This is the first signing under the new Iranian Petroleum Contract (IPC), and is based on the technical, contractual, and commercial terms outlined in the heads of agreement signed last November.

Total is operator of the SP11 project with a 50.1% interest, in partnership with Chinese state-owned oil and gas company CNPC (30%), and NIOC subsidiary Petropars (19.9%).

Patrick Pouyanné, chairman and CEO of Total, said: "This is a major agreement for Total, which officially marks our return to Iran to open a new page in the history of our partnership with the country...Total will develop the project in strict compliance with applicable national and international laws."

"This project is in line with the group's strategy to expand its presence in the Middle East," he added, "and grow its gas portfolio by adding low cost, long plateau assets."

SP11 will be developed in two phases. The first phase, set to cost around $2 billion, will comprise 30 wells and two wellhead platforms connected to existing onshore treatment facilities by two subsea pipelines.

Depending on reservoir conditions as production progresses, offshore compression facilities could be added, a first on the South Pars field.

Since last November Total has performed engineering studies on behalf of the consortium and initiated calls for tender in order to issue Phase 1 development contracts by year-end.

Homayoun Falakshahi, Wood Mackenzie's senior research analyst, Middle East and North Africa Upstream, said this was Iran's first upstream contract with foreign firms in 10 years.

"The South Pars Phase 11 deal will, Iran hopes, prompt other IOCs to re-enter the country's upstream sector," he continued. "Reopening the Iranian upstream to foreign investors could very well become one of President Hassan Rouhani's main economic achievements."

With 21 tcf of gas in place, Wood Mackenzie estimates Phase 11 could recover more than 10 tcf of sweetened gas and 450 MMbbl of condensate.

Falakshahi added: "Phase 11 opens a new chapter in the story of the South Pars. It closes the 24-phase development plan, and sets the stage for future phases, as compressor platforms are needed for the first time.

"Hopes are high in Iran that the IPC will enhance local companies' capabilities. As was the case with previous buy-back contracts, contractors will not have any right to the gas and will be paid by the sale of condensate."

This deal follows four years of preparations by Rouhani's administration and the negotiating team, led by oil minister Bijan Zanganeh.

According to Wood Mackenzie, Iran has the world's third largest gas market, bigger than China with close to 200 bcm consumed in a year.

However, increased gas production also opens new opportunities for piped exports and LNG. Iran started test exports to Iraq two weeks ago and, by 2019, could send up to 20 bcm to its neighbor.

Iran LNG is the country's only current LNG project. International sanctions imposed on Iran in 2010 prompted cancellation of others involving Total, Shell, Repsol, OMV, and CNOOC. Some IOCs are thought to be interested in revisiting Iran's LNG capability.

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